What you need to know about credit repair

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Are you thinking about working with a credit repair company?

Have you recently checked your Equifax credit report and found that it's in a state of disrepair? It could count against you when taking out a loan or opening a new line of credit, so you'll want to repair it as soon as possible. The best ways to do this include paying your bills on time and staying out of debt, as well as clearing credit card debt and closing unnecessary credit accounts.

In a bid to quickly turn their credit health around, some people turn to credit repair companies.

However, in a bid to quickly turn their credit health around, some people turn to credit repair companies, but this isn't necessarily a good option. These credit 'fixing' companies often claim to be able to remove loan defaults from your credit report, but that's not possible unless the item is proven to be wrong1.

What do you need to be aware of when dealing with a credit repair company?

After checking your credit report and noticing that there are some discrepancies on it, you'll want to get rid of them as soon as possible. Any company that claims they can simply make these incorrect entries disappear should be treated with caution1. This is because only entries that are proven to be incorrect can be removed, and only by the organisation that listed the entry. For example, a credit provider like a bank, phone or utility company can provide information that appears on your credit report. If you think it's wrong, you can go to the source and query it - if they are in the wrong, the entry can be removed from your credit report once they inform a credit reporting body, like Equifax, that they have incorrectly provided this information.

This is something you can do for free - you don't need a credit repair company to help you out. Credit repair companies are only useful for people who want to repair their credit reports but don't have the time to do it themselves, or don't understand the entire process1. It can be a useful service, but it's not a silver bullet. If you have a poor financial history, employing a credit repair 'expert' won't simply turn that around and make it appear as if you have a clean bill of financial health.

Finding and repairing past credit woes can take time, and some companies can help more than others.

Instead, you'll have to slowly work at proving you are responsible with your finances. This can take years, but it's worth it for the ability to be financially free and able to make any decision with any lender that you select - not just those specialising in bad credit loans (who may only offer you high interest rates or unreasonable terms).

Some credit repair companies can worsen your financial situation

MoneySmart reports that some charge as much as $1,000 to remove one listing.

The credit repair company that you choose to work with could end up making your financial situation much worse in the long run. MoneySmart reports that some charge as much as $1,000 to remove one listing1. If you have four or five to sort out, you might have to take out a loan just to pay for credit repair! That's a steep price to pay for something that you can easily do yourself. Your financial future is worth a couple hours of your free time.

When you contact the relevant parties, it's also a good idea to ask what you need to do to avoid this in the future (if the entries are correct). It might be paying off a debt or simply updating your personal details so they can send you important correspondence, but make sure you don't let it sit there for months or even years.

To start your investigations, make sure you get a copy of your latest Equifax credit report today and if you believe there is incorrect information in there, you can get in touch with Equifax to help you fix up the inaccuracies.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.

1MoneySmart, Credit repair. Accessed April 2017.

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